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Updated: Fitch keeps Malta's rating at 'A+'; Stable outlook

Updated - Adds PL statement - Ratings agency Fitch has affirmed Malta' Long-Term foreign and local currency Issuer Default Ratings (IDRs) at 'A+'. The rating outlooks on both Long-term ratings are Stable. Fitch has also affirmed Malta' country ceiling at 'AAA' and its Short-term foreign currency IDR at 'F1'.

"The rating affirmation reflects Fitch's view that Malta will maintain a general
government primary budget surplus in 2012-14. This would put public debt on a
declining path from 2013. This implies that the incumbent government will take
necessary action to ensure that the budget deficit remains below 3% of GDP this year and that any new government emerging from the elections will set out a credible multi-year fiscal consolidation programme that incorporates the impact of ageing," Fitch said.

"The agency's baseline assumes that the government will pass the budget and that there will not be early elections. However, its parliamentary majority is fragile and there is a risk that the budget will not pass. In the event of early elections the fiscal slippage is likely to be wider than Fitch's baseline.

"A fiscal slippage within 3% of GDP would be within the tolerance of the rating. A higher fiscal deficit could cause public debt to reach 76% of GDP in 2012."

Fitch added that is expects public debt to peak at 74% of GDP in 2013 and to decline gradually thereafter.

It said that according to the baseline path (which assumes continued but moderate fiscal adjustment from 2013 onwards), the debt/GDP ratio could fall to 69% by 2020, assuming a primary surplus of 1% and potential growth of 1.5% over the medium term. A material deviation from this baseline could lead to a negative rating action.

The adoption of a balanced budget rule envisaged by the fiscal compact is included in the baseline.

The agency warned that the main long-term threat to the public finances is the unreformed pension system. Pension expenditure is projected to increase from 10.4% of GDP in 2010 to 15.9% of GDP in 2060.

"Failure to implement reform and secure the long-term sustainability of
the public finances could lead to a downgrade in the medium-term," it said.

It explained that the baseline envisaged that the election outcome would not disrupt the medium-term objective of fiscal policy, which is to realise a balanced central government budget and stabilise the public debt ratio.

"Should post-election fiscal policy significantly fail in achieving this, it could have negative rating implications. A new intensification of financial stress, particularly if it led to a deeper and more prolonged recession than currently expected by Fitch, would also hurt the creditworthiness of Malta.

"Conversely meeting or exceeding fiscal targets, in conjunction with sustained and balanced economic growth, a reduction in the public debt ratio and an easing in the eurozone crisis could lead to positive rating action."

Earlier this month, Moody's rating agency affirmed Malta's A3 rating and negative outlook. It praised the government for fiscal consolidation, particularly for bringing the deficit below 3% at the end of last year but warned of possible slippage later this year.

Fitch has 'burst GonziPN bubble' - PL

The Labour Party said this evening that Fitch ratings agency in its country report on Malta made a clear declaration that burst the Gonzi PN bubble which cast doubts on a future Labour government's financial policies. 

In its report Fitch said: "The rating affirmation reflects Fitch's view that Malta will maintain a general government primary budget surplus in 2012-14. This would put public debt on a declining path from 2013. This implies that the incumbent government will take necessary action to ensure that the budget deficit remains below 3% of GDP this year and that any new government emerging from the elections will set out a credible multi-year fiscal consolidation programme that incorporates the impact of ageing."  

The PL said the last to speak irresponsibly was Simon Busuttil, the prime minister's special envoy, who even said the country could need a bailout (if Labour is in government). Such declarations  were not only unfounded, but harmful to the country, the PL said, adding that Fitch had not taken such declarations seriously.

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